While the energy sector did not seem too thrilled by the Capitol Hill’s decision to lift a 40-year ban on oil exports, refiners and sector-related exchange traded fund were rallying on a new tax break as part of the deal.
The Market Vectors Oil Refiners ETF (NYSEArca: CRAK) was up 2.6% Wednesday while the broader Energy Select Sector SPDR (NYSEArca: XLE) dipped 0.7%. Oil refiners have been outperforming the broader energy sector, with CRAK rising 4.9% over the past three months as XLE dropped 1.2%. [Will Energy ETFs See More Costly Spending Cuts in 2016?]
Oil refiners strengthened Wednesday after Congress agreed on providing a tax break for refineries as part of a comprehensive $1.1 trillion government spending bill, which included lifting a 40-year ban on most oil exports, according to NPR.
Refiners have been the largest benefactor of the U.S. shale oil boom as refineries capitalized off the so-called crack spread between cheap energy costs and more profitable refined gasoline and diesel – the U.S. is the world’s largest exporter of gasoline and diesel.
The lifted ban on oil exports could cause U.S. crude oil prices to inch closer to parity with global oil prices, which would diminish refiners’ profit margins. West Texas Intermediate crude oil futures traded around $35.8 per barrel, whereas Brent crude oil futures was hovering around $37.2 per barrel.
However, Congress is providing refiners with a tax break on the cost of transporting oil as part of the deal to diminish the potential negative impact to domestic refiners. The tax break would allow non-integrated refiners to tally 75% of their oil-transportation costs toward an existing manufacturing tax deduction.
Some observers, though, believe refiners were well situated to weather a lift on the oil export ban.
“They’re positioned to succeed regardless,” Carl Larry, head of oil and gas for Frost & Sullivan LP, told Bloomberg. “They can still make products cheaper than anywhere in the world. It’s the largest refining system in the world. Regardless of whether the U.S. exports crude, they’ll be ahead of the game.”
Market Vectors Oil Refiners ETF
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Max Chen contributed to this article.